It has been about a month since the last earnings report for Martin Marietta (MLM). Shares have added about 1.9% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Martin Marietta due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Martin Marietta Q3 Earnings & Revenues Top Estimates
Martin Marietta Materials, Inc. reported solid results in third-quarter 2019, wherein the top and bottom lines surpassed the respective Zacks Consensus Estimate, and improved on a year-over-year basis. The upside is mainly driven by broad-based improvement in shipments, and pricing and profitability across the Building Materials business. This reflects disciplined execution of its strategic plan and operational excellence.
Notably, it raised its full-year 2019 guidance on the back of strong performance in the first nine months of the year and attractive underlying housing market fundamentals.
In the quarter under review, the company reported adjusted earnings per share of $3.96, beating the Zacks Consensus Estimate of $3.50 by 13.1%. Also, the reported figure increased a whopping 38.9% from the year-ago level of $2.85 per share.
Total revenues (including Product and services and Freight revenues) in the quarter came in at $1,420.2 million, up 16.4% year over year. The upside was mainly attributable to double-digit improvement in both aggregates and cement shipments, as well as solid volume growth in its downstream products.
Notably, Products and services revenues of $1,323.1 million surpassed the consensus mark of $1,249 million by 6.2% and increased 15.8% year over year.
Building Materials segment (including aggregates, cement, ready-mixed concrete, asphalt and paving product lines) total revenues were $1,355.4 million, reflecting an increase of 18.3% year over year. The improvement was backed by strong demand across the business and benefits from weather-deferred projects.
Within the segment, product and services revenues amounted to $1,263.8 million, up 17.7% from the year-ago level. Freight revenues of $91.5 million were also up 26.6% from the year-ago period.
Again, in Product and services, Aggregates’ revenues of $818.7 million improved 12.4% from the year-ago quarter. Also, Cement’s revenues grew 20.6% year over year to $119.6 million. Ready Mixed Concrete’s revenues also improved 9% year over year to $271.8 million. Revenues in Asphalt and paving product lines increased 36.6% from the year-ago quarter to $131.1 million.
Geographically, Mid-America Group operations’ shipments grew 14% from the prior-year period, driven by attractive market fundamentals that drove infrastructure and commercial projects. Pricing in the said region also improved 3.5% from the prior-year quarter.
Southeast Group operations inched up 0.8% from the prior-year quarter on the back of 5.7% growth in pricing, partially offset by negative impact of Hurricane Dorian and delayed timing of projects in the region. Moreover, West Groups’ aggregate shipments grew 14.8% from a year ago, driven by energy-related projects along the Gulf Coast, increasing commercial activity in Colorado and improved weather conditions. Pricing also grew 9.2% year over year.
The Magnesia Specialties segment — including magnesium oxide, magnesium hydroxide and dolomite lime products — reported total revenues of $59.3 million, decreasing 13.2% year over year. The downside was due to international chemicals and domestic lime customers rationalized inventory levels.
Consolidated gross margin during the quarter came in at 29.6%, improving 390 basis points. Also, adjusted EBITDA of $493.1 million grew 27.4% year over year.
Liquidity and Cash Flow
As of Sep 30, 2019, Martin Marietta had cash and cash equivalents of $49.1 million compared with $44.9 million on Dec 31, 2018. Net cash provided by operations was $649.8 million at the end of third-quarter 2019 compared with $441.5 million in the comparable period of 2018.
2019 Guidance Raised
Backed by solid underlying demand and third-party forecasts, Martin Marietta raised its full-year 2019 guidance. Total revenues for 2019 are expected in the band of $4.66-$4.77 billion compared with $4.535-$4.730 billion expected earlier.
Gross profit is projected in the range of $1,175-$1,230 million (compared with prior projection of $1,130-$1,235 million). The company now expects EBITDA within $1.245-1.305 billion compared with $1.20-1.315 billion guided earlier. It expects capital expenditure in the range of $375-400 million compared with $350-$400 million anticipated earlier.
Aggregates Product line total revenues are projected in the range of $2.980-$3.020 billion. Prior expectation was $2.865-$2.960 billion. Aggregates volume growth is expected in the range of 11-12% versus 8-10% anticipated earlier. Average selling price is likely to grow 4-5% from a year ago.
Cement total revenues are estimated in the band of $435-$465 million. Ready Mixed Concrete and Asphalt and Paving’s Products and services revenues are anticipated within $1.245-$1.275 billion (versus $1.20-$1.40 billion expected earlier). The company expects Magnesia Specialties Business’ net sales between $290 million and $300 million.
Within Aggregates, infrastructure shipments are likely to grow in high-single digits. Non-residential shipments are projected to increase in double digits. Residential shipments are also expected to rise in double digits. ChemRock/Rail shipments are likely to be marginally up from the prior-year figure.
Preliminary 2020 View
The company currently projects low-to-mid-single-digit growth in aggregates shipments and mid-single-digit rise in aggregates pricing. Per third-party forecasts and underlying demand trends, Martin Marietta believes that the current construction cycle will continue boosting its future performance. Notably, in 2020, the construction cycle is expected to expand at a steady pace for each of its three primary construction end-use markets.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
At this time, Martin Marietta has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Martin Marietta has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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